Never Delegate Understanding” – Charles Eames
Have you ever been surprised by the announcement of a new organization policy? Have you ever thought, “What were they thinking?” What did you say to your coworkers? What did you say to your boss? What did you do? Effective organization and management design depend on an in-depth understanding of the key stakeholders.
Understanding stakeholders’ needs is the center of the Leadership System and the first step in the Design Framework (See Chapter 6). In many cases, if just a little more time were taken to consult key stakeholders as part of the design process, some surprises and missteps could be prevented or mitigated. Stakeholder value is the center of the leadership system because it informs and helps align the other eight components from vision and strategy to the scorecard and learning.
An underlying assumption of this framework is that sustainable excellence requires creating value for ALL key stakeholders. In other words, designing an organization that creates “win-win” solutions for all stakeholders vs. simply taking from one to serve another. In this context, there are at least six key stakeholder groups: customers, workforce, investors, suppliers and partners, society and community, and the natural environment.
Objectives – Understand the concepts, components, and relationships of Stakeholder Value and how they contribute to leadership and organization [re]design for sustainable excellence.
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Segmentation of the stakeholder groups and identification of their needs inform the other eight leadership system components, including the other three cornerstones of strategy, systems, and scorecard.
Compelling Directive — Stakeholder segments and their needs inform the choices made when developing the mission and vision. You may decide to serve only a few or even one segment vs. trying to serve them all. For example, Monfort College of Business (2004 Baldrige Award recipient) decided at one point to eliminate all programs except the undergraduate business program so that they could be the best at one thing rather than good at many things.
Focused Strategy — Strategies are developed to address the unique needs, wants, and desires of the individual segments. While each segment might not have an individual strategy or specific goal, the strategies that are developed address the differing needs of different segments. Even when the product or service doesn’t change, the marketing media and messages are often adjusted to communicate with the individual segments.
Enable, Empower, Engage — The various workforce segments and their specific needs inform the design and development of the plans, systems, and practices to enable, empower, and engage the workforce to accomplish the strategy.
[Re]Design Systems — The needs of the stakeholder segments inform the design of the systems, products, and processes. Also, understanding the needs of the stakeholders is Step 1 in the system [re]design framework described in Chapter 6.
Comprehensive Scorecard — Segmentation is integrated into the design of the data collection, organization, and analysis in the comprehensive scorecard. Each stakeholder group and segment is measured. The specific needs of each stakeholder group/segment inform the development of predictor measures such as product and service quality. For a full description, see Chapter 7.
Org Performance Review – The stakeholder segments and needs, combined with an understanding of the stakeholder system of service, inform the analysis of the comprehensive scorecard results. In addition, the results of the review discussions inform the refinement of stakeholder segments and needs, along with our understanding of the system.
Align, Coach, Appreciate – Knowledge of stakeholder segments, needs, and interrelationships inform what behaviors we need to reinforce as well as what types of reinforcement methods are effective for the workforce.
Learn and Improve – The stakeholder segments and system of service provide a framework for organizing the learning and improvement activities. Also, lessons learned help to refine the stakeholder segments, needs, and our understanding of the interrelationships between the stakeholders.
Six Stakeholder Groups
For any given organization, stakeholders can be organized into six groups (Diagram 2- 2). We address the needs of the customers, the workforce, suppliers, and partners first because they create value for the investors and represent the core of any successful business. Depending on the type of organization, the customers might be paying recipients of products and services, primary beneficiaries of non-profit or government services, patients, or students.
Modern workforces are composed of members from a variety of employment situations including, employees (full- and part-time), contractors, and non-profit volunteers. Inputs to the organization are provided by a variety of external organizations from suppliers of components and materials to partners that share both risk and reward. Investors provide the financial resources to make the value chain possible. For-profit investors include owners, stockholders, lenders, etc., and they expect some sort of monetary return on that investment. Non-profit donors provide resources to conduct the operations and serve the primary beneficiaries, and they want the most impact for their donation. Taxpayers, like donors, fund the activities of the government and want the most benefits for the least tax burden. The public and local communities in which the organization operates are stakeholders in many aspects of organization operations. Finally, the natural environment and future generations find a voice in the other five stakeholders, public policy, and regulation. The six groups can be segmented into subcategories based on their different needs, wants, and desires.
Diagram 2-2 Stakeholder Groups
We begin with the customers because they are the group that the organization is (or should be) designed to serve. We bring people together and organize their efforts to design, build, and deliver products and services that individuals can’t accomplish by themselves. For the commercial, profit-seeking organization, profit is a byproduct of doing that well.
While organizations serve many purposes in society, serving the customers is the primary mission of the organization. In other words, without a customer to help, there is no reason for the organization. Depending on the type of organization, the customers might be paying recipients of products and services, primary beneficiaries of non-profit or government services, patients, or students.
Customers of for-profit organizations typically exchange money for products and services. The relationship is often evident. Non-profit “customers” are the primary beneficiaries of the non-profit organization‘s products and services. They usually do not exchange any money with the organization, although there are exceptions and partial payments situations. Customers of non-profit organizations are the people who benefit from the output of the non-profit, such as feeding hungry children, afterschool programs, etc.
While some government organizations consider the taxpayers as customers, it is not generally helpful to identify taxpayers as customers. Taxpayers are the investors providing the resources, but they are not always the consumers or beneficiaries of every government program. While taxpayers and beneficiaries are often the same people, as a taxpayer, they are investors and can’t provide feedback on their needs if they are not the direct beneficiary of the service provided. Government “customers” like non-profits are the primary beneficiaries of the products and services. At the local level, those who use the roads that are built and maintained by government organizations and their contractors are the customers. At the national level, the overall population benefits from national security.
Many non-commercial organizations have difficulty viewing the people they serve as customers and instead choose other words to describe them, such as clients, students, patients, and so on and so forth. Part of the difficulty lies in a narrow view of customers as consumers of commercial goods and services. While identifying the customers for a profit-seeking retail business might be straightforward and easy, other situations are not so clear-cut.
Even for-profit companies have difficulty figuring out how to best serve customers when they participate in the production and delivery of the product or service. The degree to which the customer engages in the creation of the product or service influences the company-customer relationship and the nature of the product or service. The degree of customer participation affects what you can control with respect to quality, outcomes, etc.
For example, a customer of the local health club is using a service but must participate in accomplishing the desired results. The health club provides equipment and coaching, but the customer has to get on the treadmill and do the work to get the desired results. The health club can’t control how much effort the customer puts into their workouts, how often they work out, or how much they eat and drink. So the health club can’t guarantee the customer any results.
What the health club can control is the quality and serviceability of the equipment and the quality of coaching. So it is critical to define the product and service clearly and carefully while making the roles and responsibilities of each party clear. A similar situation exists in education.
Students as Customer
Many educators that I have worked with resist the notion of students as customers. Part of their reluctance is due to the nature of the product and service (education) and the results that depend on the student’s ability and effort. As mentioned previously, when educators think of a customer, they often think of the local retail-outlet customer. However, that is only one type of customer, as noted in the for-profit health club example.
The first step is to define the education products and services. For colleges and universities, the product offering might be described as “the opportunity for the customer (student) to earn an accredited degree.” Like the health club, the university provides facilities (sometimes online), a curriculum, and professors (coaches). Try as they might, the professors and administrators cannot control or guarantee that learning will take place. Nor can they ensure the successful completion of degree requirements. The student-customer must do the work to learn and earn the degree. Student involvement makes it difficult to determine how to improve, what to improve, and who needs to improve.
Patients as Customers
Like students, patients are involved in a process. While a surgeon might be able to control the process while you are sedated, the overall healthcare outcome is a combination of your behavior, prevention, previous interventions, heredity, and other factors. As with the gym or education, to be most effective, healthcare is a partnership between the provider and the patient. Your general practitioner doctor can provide accurate diagnostics, advice, and perform procedures. But YOU have to do the diet, exercise, and take your medicine when directed to achieve the desired results.
As in the health club and school, the patient is a participant in the delivery of healthcare and thus partially responsible for the results. In addition to their level of participation in the process, customers often do not understand what they need. However, customers are seldom a homogeneous group with the same needs, wants, and desires. Segmentation is based on the assumption that one size rarely fits all.
For similar products and services, customers often have differing needs, wants desires, and objectives. Customer segmentation informs the design of the products, physical environment, placement, price, promotions, and the people, processes, productivity, and quality. Different customer segments often have different reasons, requirements, and objectives for the product or service. For example, one segment might want high-performance, another segment might want a status symbol, and another segment might want low cost. Also, the environment is often an integral part of the customer experience from the ambiance of the coffee shop to the online interface. Different sub-groups might prefer to shop for the product in various places such as online vs. a shopping mall. Different segments often have different price points. For example, a business professional might pay more for the same product vs. a recreation buyer. For example, fewer people travel business class for a vacation than do for reimbursed business travel.
The development of promotions, including messaging and media, is informed by specifics from the segments. Customers interact with the people and processes in the organization, and different segments often have differing expectations for those interactions. The quality of the relationship is often as much or more influential in customer satisfaction as the quality of the product. The need for customer relationships influences the design of the systems and culture of the organization. Finally, productivity and quality determine the value that is available to pass on to the customer. Value often has the most significant influence on a purchase decision. There are two basic approaches to segmentation — individual consumer segmentation and organizations as customers (B2B) segmentation.
We start with individual customers, including users and primary beneficiaries, who can be segmented using a wide variety of criteria. All too often, organizations segment customers based on the product type, but that is a company-centric approach. The goal here is to base the segmentation on the differences from a customer- or problem-centric approach.
There are often group characteristics that influence or predict their needs. Some of the typical customer segmentation options include geography, socio-economic factors, gender, education, profession, etc. In some instances, those segments are so numerous that we identify the essential options and let the consumer select the best fit for themselves. Due to advances in technology, information, and communication, this kind of flexibility is possible for many products and services. Customer purchase decisions are often influenced by a variety of influencers, including family, friends, experts, and social media articles and ratings. While it is sometimes difficult to identify or do anything about these influences for individual consumers, it is possible to identify and address the needs of these influencers in an organization.
Organizations as Customers
In addition to the types of segmentation used for individual customers, there are a few characteristics specific to Business to Business (B2B) or Organization to Organization (O2O) situations. There are at least three types of characteristics that are useful for the segmentation of organizations: geography, the individual organization, and types of decision influencers.
With geography comes a list of characteristics that can be important to the marketing processes and products, such as country culture, laws and regulations, and economic conditions. Some organizations have a different segment for each country, and sometimes similar countries can be grouped into regions. Your specific situation will dictate the most useful approach. Organizations are often so large and have such distinctive needs that an individual organization might itself be a segment. Organization as a segment occurs when dealing with large corporations or the government.
In addition to geography and the peculiarities of individual organizations, there are often multiple people inside the organization with different needs and varying degrees of influence over the purchase and repurchase decisions. When an organization makes a purchase, there are often multiple people involved with different agendas and priorities. The internal influencers can be grouped into three categories, including users, administrators, and leaders (decision-makers). The influence and involvement of each group vary depending on the product or service and the price. While users often have the authority to buy low-cost items, administrators (e.g., supervisors and purchasing) are often needed to approve higher-cost purchases. For large, expensive purchase decisions, leaders are involved and often make the final decision based on advice from the users and administrators.
Boeing Aerospace Support, a 2003 Baldrige Award Recipient, segmented their customers based on three dimensions or tiers which they depict as a 3-D Cube (Spong and Collard, 2009, p. 27). Tier 1 was Geography — International or U.S. Tier 2 was the Specific Organization (e.g., Air Force). Tier 3 was the Internal Influencers (Users, Gate Keepers) and Decision Makers. Spong and Collard describe the process where the senior leadership team developed their cube as “a defining moment” in their journey to excellence (pp. 27-28).
Some organizations find it useful to segment customers by profitability. In an environment of limited resources, investments for improvement often have to be prioritized based on their expected economic return. Volume and price over time result in the lifetime value of the customer. When cost is considered, the profitability of specific customer segments can be determined. The more profitable a customer segment is, the more you can afford to add additional features and functions to their experience.
Some high-maintenance customer segments are challenging to serve profitably and thus can be poor investments. One example that many people are familiar with is the frequent flyer model that airlines use to segment their customers. Frequent flyer programs provide additional higher-cost services to customers that produce more revenue and profit. They also are an attempt to encourage repeat business.
While it is critical to understand the immediate customer, in some situations, it is essential to understand the customer’s customer. Why? Because the immediate customer doesn’t always understand what they need to serve their ultimate customer. For example, when we treat students as customers, they do not always know what they need to know to get and succeed at the job they want. Consequently, education providers also need to reach out to employers to understand what they need so they can build that into the education program. A similar situation exists for some component manufacturers (e.g., sound systems for cars).
The more we know about customers, the better solutions and offerings we can develop. Depending on the type of organization, the customers might be paying consumers of products and services, primary beneficiaries of non-profit or government services, patients, or students. It is not just a matter of semantics. Identifying the customers correctly is critical to designing the entire organization. We design from the outside in — from the customer to the production systems to the suppliers and partners. Customers of all types seem to have an insatiable appetite for better, faster, and cheaper. Their demands have extended into social responsibility issues, and many now make product choices based on the impact on the natural environment. In the free market, competitors are always happy to help raise the bar.
A talented and engaged workforce is critical to success today, tomorrow, and next year. Even during economic downturns and periods of high unemployment, the battle for the best talent is still a challenge for organizations. Unfortunately, according to Gallup, the evidence suggests that most organizations are losing that war as most employees are looking for other opportunities and are not engaged. While leaders often say people are their greatest asset, many leaders are attempting to maximize income and profit with only one-third or less of the workforce engaged.
We need better ways to attract, engage, and retain talent. Understanding the different workforce segments and their individual needs should inform both the overall organization strategy and individual system designs. We segment stakeholders into subgroups based on their different needs, wants, and desires. Our purpose is to understand their different needs so that we can design appropriate solutions to address those needs. Segmentation criteria can be organized into three groups: job type, demographics, and employment category.
We begin with job type. Job type may be the most important factor as it informs the strategy, human resource development plans, activities, and support decisions. It seems obvious to point out that the needs of a front-line manufacturing worker assembling tractors will be different than a research scientist in a DNA lab. The nature of the job or work generally falls into four categories or segments, including physical, information, creative, and bespoke. We discuss each type further in the section on the nature of the system in Chapter 6.
Each job type segment or category can be further segmented into more specific sub-segments based on the particular work and how it impacts the organization’s support system including training and development, work environment (e.g., safety), supervision, and reinforcement or incentives. The specific job requirements compared to the employee’s capabilities informs the needs assessment and subsequent training and development program design. Also, the type of job influences the most effective motivation mechanisms and incentives.
Within a given job type, worker needs vary based on a variety of characteristics, including cultural background, education, generational cohort, and location. Cultural backgrounds can vary in the same office. This diversity in cultural norms and habits can create a diverse set of needs and desires. Education also drives the design of many organization policies and processes, including the training and development programs. The differences in generational cohorts (e.g., Baby Boomers, Gen X, Y, and now Millennials) have been widely researched and discussed.
Finally, the location of the workers can create different challenges and needs. For example, workers located in New York City may have very different needs than those in a small town in the Western United States or virtual workers in Europe or Asia. While this used to be an issue for a few larger multinational corporations, even some small businesses now have virtual assistants, specialists, and even manufacturing located around the world. In addition to job type and demographics, there is the nature of formal relationships with the organization.
Depending on the type of organization, the workforce stakeholders could be a combination of employees, volunteers, and contractors. The needs of every kind of worker vary depending on the situation. Employees generally come in a couple of types including salaried, hourly, full- and part-time. Collective bargaining organizations and agreements may represent some employees. Employees both full- and part-time make up the workforce for most commercial, non-profit, and government organizations. This core group of employees is often supplemented by other types of workers, including contractors.
Contract workers have become more numerous over the last decade and include a wide variety of situations from delivery truck owner-operators to large contractor firms that supply pseudo-employees to a customer firm. The needs of employees often differ from those of contractors and freelancers. Some non-profit organizations use volunteer labor to supplement their workforce. Volunteers offer many benefits as well as challenges for leaders. Each of these groups has characteristics and needs specific to the group.
Government organizations can be even more complicated with a mix of employees, political appointees, elected officials, and contractors, each with different needs and expectations. The trick is to understand the segments that are specific to your unique situation and use the needs of those segments to inform the design of the organization, systems, policies, etc.
Suppliers and Partners
Inputs to the organization are provided from a variety of external organizations from suppliers of materials and components to partners that share both risk and reward. Suppliers and partners are more than just raw materials, and parts dropped off on the loading dock: suppliers are often integrated with the workforce. The more they are integrated into your processes, the more their needs are essential inputs to the design of your operations. While their impact varies depending on the situation, supplier, and partner performance influence your organization’s performance. In other words, if you squeeze suppliers on price, they won’t have the resources to improve their products and services to help you improve your business.
Depending on the situation, the segmentation of suppliers is often similar to the customer and workforce segmentation. Also, sometimes there are situations where you may want to segment suppliers based on the cost and criticality of their input. I don’t spend a lot of time managing my supplier interactions with the office supplies store down the street (nothing against my local office supplier). But I do spend a lot of time managing relationships with graphic designers, website providers, etc. Some organizations have developed supplier segments based on the work they are doing and whether it is a core competency or not: in other words, whether it is a critical part of the business vs. a commodity. With the customer, workforce, and supplier/partner segments identified, the value-chain stakeholders are now complete. The remaining three stakeholder groups are the investors, society, and the natural environment.
Regardless of the type of organization — commercial, non-profit, or government —it costs money to operate the value chain. Investors come in a variety of shapes and sizes, depending on the situation and type of organization. For-profit investors provide capital and expect a monetary return on their investment. For-profit investors can be segmented into several categories, including owners (private and publicly traded stockholders) and lenders via a variety of financial vehicles.
The needs for each segment are different. Private (often family) owners of companies usually have a longer-term perspective and are building an economic engine for the future. Publicly traded stockholders often have only a temporary (short-term) interest in the company. Lenders are interested in the terms and conditions related to the particular financial instrument and the associated risks.
Non-profit investors (donors) provide capital to fund the activities (value chain) of the organization, and they expect the most benefit to the primary beneficiaries of those non-profit services (e.g., hungry children). Non-profit donors want expenses to be low, so more of their donor money goes to the primary beneficiaries. In many cases, they are increasingly interested in “helping” you manage the firm.
To assume all your donors have the same motives and requirements is a mistake. Often, non-profits have deeply held beliefs about their donors and what they want. While these beliefs may have been true at one point, they are often untested and out of date.
Government investors (a.k.a. taxpayers) provide capital and expect the best government services for the least amount of tax burden. The ability to understand and serve such a diverse group is limited by government processes. Depending on the type of government you have, taxpayers are represented by government officials (sometimes elected) who decide what is best for the taxpayers. However, once the mandate for the government agency is determined and funded, it is the responsibility of leaders to figure out how best to deliver the mandated services for the least tax burden. Taxpayers are also members of society and live in the communities where we operate.
While financial solvency and profit are the “lifeblood” of the organization, they are not the purpose of the organization. Our bodies require blood and oxygen to survive, but that is not why our bodies exist. Organizations need money to survive and thrive, but that is not their primary reason for existence.
In addition to the traditional investors, there are some situations where the person or organization paying for the products and services is not the user or customer of the product or service. For example, parents often pay for college, but they are not the customer of that process. While it is true that they are a key stakeholder and want their children to get an education so they can get off of the “family payroll,” they are more like an investor than a customer.
The point here is not about semantics. We classify stakeholders so that we can then use the information about their needs to design different aspects of the organization. In the case of parents, we meet their needs if we meet the needs of the students and future employers at a reasonable cost or investment.
Society and Community
We allow businesses and non-profit organizations to exist and have specific legal status because they serve the economic needs of society. Organizations produce needed products and services, employ citizens, and buy from other organizations that employ citizens. Organizations and individuals then pay taxes to fund services essential for the organizations to operate and individuals to live. All types of organizations — commercial, non-profit, and governmental — create and exchange value. Regardless of legal status, they are all integrated into one economic system. Consequently, as the organization designs the products, services, and operations to make money or use the donated funds effectively, they also have a larger reason for existence, and that is their contribution to society and the local community.
While some organizations treat corporate social responsibility as a veneer layer or department separate from the other operations, creating value for the multiple stakeholders and avoiding trade-offs requires that it be integrated into all aspects of the organization. When we fail to address the needs of society and our local communities proactively, the citizens find a voice through other media. The citizens influence elected officials and government agencies who then create policies and regulations to address their needs.
Also, everyone with an internet connection can broadcast their experiences and opinions to the world via social media. Sometimes, third-party surrogate stakeholders represent the interests of citizens and consumers through accreditation and certification programs. Unfortunately, many of these methods are inefficient and set up an adversarial relationship.
High-performing organizations proactively address the needs of society and the local communities. See the discussion in the Introduction Chapter on “New Attitude” and Dr. Alexander’s approach to addressing the needs of multiple stakeholders. Stakeholders often wear more than one hat — your customers are also members of the community, employees, or even employers too.
The natural environment doesn’t have a voice. Instead, the natural environment finds a voice and influence through the other five stakeholder groups. For example, there is a growing number of consumers who will pay a premium for environmentally friendly products and services from firms that are good corporate citizens. If you can figure out how to provide environmentally friendly products and services for a comparable price, that could be a competitive advantage. The most talented workers have options and are increasingly choosing to work for organizations that are good corporate citizens, and that includes being environmentally friendly.
A major accounting firm executive told me that the #1 question asked by potential hires in the interview process is about their social responsibility values and goals. This influence is moving up and down the supply chain. Investors are recognizing the risks associated with poor environmental practices and making investment decisions accordingly. Society is putting pressure on organizations to improve their environmental performance using government regulation and social media.
One way to organize the requirements is to segment the natural environment into categories, including air, land, water, and energy. Then the direct linkages to the value chain can be examined, including the sources, inputs (materials), use, and recycling. All too often, the reluctance is based on the notion that we have to give something up to be environmentally friendly. While that might sometimes be required, it is often a false choice.
Note: For an even more in-depth discussion on stakeholder theory, see Freeman et al., (2010).
All six stakeholder groups have needs and demands, putting increasing pressure on leaders to figure out how to create value for all of them at the same time. When you step back and look at all six stakeholder groups together, it can seem a bit overwhelming. If we view these requirements through the lens of the current system, the only solution might be compromise and trade-offs. In other words, take something from one stakeholder to serve another.
The only way around this is to redesign the systems with a new attitude and a systems perspective. Once you adopt a systems view, it becomes clear that there is a business logic of value exchanges between the stakeholders. There are plenty of examples of where it is possible to make even more money serving multiple stakeholders, including the environment. (e.g., Anderson, 1998). The task is to move beyond individual stakeholder needs to a true system of service.
System of Service
The core concept is that stakeholders are interconnected, making it not only possible to create value for all of them, but also the only way to sustain high performance (Diagram 2-9). There is an old saying in business, “You better be serving the customer or serving someone who is.”
We begin with a highly talented and motivated workforce that creates excellent products, services, and experiences for customers. Customers are delighted and come back, spending more money, referring friends, and growing the top line. Investors are happy as the revenue increases, and operational improvements result in greater efficiencies. This flow is enhanced even further by high-performing suppliers and partners who provide great input into the value chain, earning repeat and referral business, resulting in the capital to continuously improve their products, services, and operations. When all this is done in a way that is ethical and provides value for society and the environment, we can attract talented workers, consumers who care, and investors concerned about risk. All of the above provide even better financial performance, benefiting the investors and the other stakeholders through profit sharing and improved products, services, and operations.
Diagram 2-9 Stakeholder System
I once worked for a company where the CEO used to tell employees NOT to focus on the financials. The company didn’t have any financial goals, at least none that they communicated to the workforce. The CEO would often use basketball to explain how we grew the business and made even more money. He said, “Watching the financials is like playing basketball while watching the scoreboard.”
You don’t put many baskets through the hoop (customers) while watching the scoreboard (financials). You put balls through the customer hoop by working effectively as a team and focusing on customer needs. If you do that well, the scoreboard will change in our favor. He understood how the system of business worked and used that to focus the workforce on the things that mattered most to the long-term success of all the stakeholders.
Challenge of Systems Thinking
Given that there are over 50 years of research and application of the concepts of systems, you might be asking, “Why don’t more leaders take a systems approach?” “Why didn’t I learn about this in school?”
There are two fundamental challenges to taking a systems approach, and both have to do with human learning. First, it can be difficult for humans to grasp and learn how the system works due to the distance in time and space between actions and results. When you have immediate feedback, learning is relatively easy and quick. When there is a delay between activities and the results, learning is more difficult. In organizations, the results can take months and sometimes longer to show up, making it difficult to understand how a strategic decision last year is affecting performance a year later.
The second issue is we teach business function by function. Business schools are typically organized into silos for each functional area such as finance, accounting, marketing, management, etc. And then we wonder why graduates create functional silos in organizations. While many business schools include a capstone strategy course in an attempt to bring it all together, it is typically too little too late. The solution is to start now with the stakeholders and build systems thinking into the organization.
Stakeholder Listening & Learning Methods
The systems perspective requires that we understand the stakeholders’ needs and their particular place in the system. The menu of methods to understand stakeholder needs can be organized into three categories: stakeholder perceptions, stakeholder behavior, and empathy profiles.
The most common method for gathering stakeholder needs, desires, and preferences is to ask them directly using written and verbal surveys and focus groups. In addition, some organizations collect comments and feedback through interactions with the stakeholders. While stakeholder perceptions are useful, their actual behavior (e.g., purchase decisions) can provide even better insights. Finally, empathy profiles are used to understand stakeholder experiences, and how those influence what, they think and feel — and ultimately what they say and do. Each method provides different information, and when combined, can help develop a stakeholder profile.
Surveys and Focus Groups
One way to understand the stakeholders’ needs and desires is to ask them. Two common methods are surveys and focus groups, each with advantages and disadvantages. Surveys typically ask quantitative, deductive questions to help validate requirements and discover additional preferences using a limited set of options. Surveys can also ask open-ended qualitative questions to gather the information that can be used inductively to develop requirements.
It might seem obvious, but surveys can only gather the information that they ask for. Focus groups are useful for going deeper into stakeholder experiences. Focus groups have the advantage of exploring previously unidentified issues. Both surveys and focus groups assume participants understand their preferences. Other listening opportunities include interactions and unsolicited feedback during customer service exchanges and formal complaints. High-performing organizations use systematic approaches to capture their impressions from stakeholder interactions and informal feedback gains during the conversation (including instant message conversations) with customers.
Another source of stakeholder feedback is social media. Social media might be one of the best-unvarnished sources of what stakeholders are thinking — at least the ones motivated to spend the time to share on social media, who may be your biggest fans and most dissatisfied stakeholders. While all these methods can provide useful information, they are limited.
Customers Don’t Always Know What They Need
The first problem with asking customers is they are often unfairly influenced by the person giving them the survey. How many times have you been given a survey and the person then coached you on how they wanted you to answer the questions so that they could get a good rating and a raise or bonus? Even the best survey instruments can produce invalid information if the process is implemented by those who are being rated. Don’t waste your money. And don’t put your employees in a position to BEG for high ratings from their customers. If you want the best data, consider using third-party anonymous surveys.
On the surface, it might seem arrogant and dangerous to say the stakeholder doesn’t always know what they want. And it is, so we will be careful and clarify the nuances. Customers often know what specific problem they need to solve. For example, they need safe, quick, and economical transportation from one country to another. However, many to most airline customers (passengers) do not know what it takes to produce a safe, fast, and economical flight. They cannot help us define all the requirements of safety. Only airline professionals can do that. What customers can provide is their perspectives and experiences to help us use our technical knowledge to develop better passenger experiences.
Education has a similar challenge with students as customers. Student customers often do not know what they need to be successful in the career they are preparing to pursue. That limits their ability to tell us what they need with regard to knowledge, skills, and abilities for their profession. They can tell us what is working and not working regarding the content, media, or teaching. However, the student’s effort and capability can be the problem, rather than the content, media, or teaching. So treating students as customers is not nearly as straightforward as some other customer situations. See the previous discussion in this Chapter on customer participation in the production process.
While faculty steeped in the profession often know much of what they need to teach, faculty are sometimes limited in practical experience, especially current challenges in practice. To fill the gap, some high-performing universities and colleges gather input from the customer’s customer: in this case, the organizations that hire the graduates. Note: Requirements can also come from stakeholder surrogates such as the government via regulations, third-party accreditation, certification programs, and activist groups. The solution to the issue of stakeholders not always knowing what they need is to gather and use multiple perspectives, including their actual behavior and decisions, to inform the design of the product, services, and delivery.
Customers often tell us one thing on the survey and then do another when they decide to buy our product or service. There can be many reasons for this disconnect, including the survey problems identified in the previous section. However, even under the best circumstances, stakeholders may not understand the reasons behind their own decisions and actions. Actual behavior, such as customer purchase patterns can tell us what customers really prefer.
One of the hardest things to know is stakeholder intentions. While we can ask stakeholders about their intentions, their actual behavior will confirm or disconfirm what they tell us. For example, we often ask our existing customers about their intent to buy from us again, renew subscriptions, etc. Their actual repeat business activity validates their stated intentions. The same is true for referrals. We can ask customers if they would recommend us to a friend, but unless we ask new customers how they discovered us, we will never know if they did recommend us. Stakeholder perceptions, combined with their actual behavior, provide a more complete picture of their needs.
While it is useful to ask stakeholders their perceptions and analyze their actual behavior, both approaches are limited in their ability to provide us with deeper insights into their behavior. Deeper insights into their thinking and behavior help us develop solutions that don’t currently exist, such as new products, services, and organization designs.
Empathy is the ability to understand and share the feelings, thoughts, and attitudes of another person. It is the key to creating value for multiple stakeholders. The empathy profile can help gain a deeper understanding of your stakeholders and what it is like to be them. An empathy map as described by Osterwalder and Pigneur (2010) is a visual technique for depicting what a person sees and hears, thinks and feels, and says and does — it also identifies their most significant pain points and potential gains. For our purposes as organization architects, we have modified the visual organization of the empathy map to include three sections, each with two cells (Diagram 2-7).
Diagram 2-7 Empathy Profile Sequence
As we capture the data from the stakeholder interviews, surveys, and observations, we can organize it around three phases: Input – Processing – Action. These involve what they HEAR and SEE (Input), what they THINK and FEEL (Processing), and what they then SAY and DO (Action).
This six-cell profile format helps you think about the connections and logic between the three major pieces: (a) what they hear and see or the input (organization, product, and service experience); (b) what they think or the processing that includes both rational and emotional dimensions (head and heart); and (c) what they then say and do based on their thinking and feelings about their experiences (behavior).
To populate the cell in the framework, you need good questions. The usefulness of the completed empathy profile depends heavily on the quality of the questions. The questions should fit the context of the product or service, process or system, or organization.
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Latham, J. R. (2013b). A Framework for Leading the Transformation to Performance Excellence Part II: CEO Perspectives on Leadership Behaviors, Individual Leader Characteristics, and Organizational Culture. Quality Management Journal, 20(3), 22 | Read More
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